As transit agencies approach a post-pandemic fiscal cliff, a new report aims to explain the historical drivers of fiscal instability and potential new models of funding.

Surmounting the Fiscal Cliff: Identifying Stable Funding Solutions for Public Transportation Systems, a research report by Yonah Freemark and Lindiwe Rennert for the Urban Institute, recommends developing a diverse and more stable set of subsidies for transit agencies, along with other suggestions to increase ridership and stabilize finances. The 78-page report, funded by the Transit Center, calls on local and state leaders to leverage federal transportation dollars that most states spend on roads to support transit agencies, converting the funds to support capital investment while shifting local and state funds to operations.

Sales taxes are the most common source of revenue for transit but the authors suggest that other sources should be considered for additional support, such as property taxes, income taxes on high-income individuals, and charges on driving.

Transit agencies must identify ways to increase service, encouraging additional ridership, boost operational efficiency instead of reducing service or headcount, and invest in improvements to speed operation and cut energy costs, such as dedicated bus lanes. The report also recommends a “rainy-day fund” to address revenue fluctuations from year to year. "More stable, diversified funding, combined with thoughtful approaches to service, can allow agencies to surmount this fiscal cliff while enabling them to expand service into the future and better preparing them to face — or allowing them to avoid — future emergencies.”

Seven large U.S. transit agencies now carry more passengers than in 2019, “suggesting that potential growth in transit ridership beyond what occurred before the pandemic,” the authors noted.

The full report can be found here.